WRAPUP 1-U.S.

Business spending plans gauge hits one-year high

February 27, 2013|Reuters

* So-called core capital goods orders surge 6.3 percent

* Durable goods orders ex-transportation up 1.9 percent

* Aircraft, defense capital goods orders tumble

By Lucia Mutikani

WASHINGTON, Feb 27 (Reuters) - A gauge of planned U.S.business spending increased by the most in just over a year inJanuary and new orders for long-lasting manufactured goodsexcluding transportation rose solidly, pointing to underlyingstrength in factory activity.

"The strong gains in core capital goods orders suggests thatbusiness investment activity, which has been one of the sourpoints of this economic recovery, could provide a meaningfullift to overall economic activity this quarter," said MillanMulraine, a senior economist at TD Securities in New York.

U.S. stock index futures were little changed and U.S.government debt prices were higher in morning trading. Thedollar pared losses against the yen after the data.

Durable goods orders excluding transportation increased 1.9percent, the largest gain since December 2011, after increasing1 percent in December. That was well above economists'expectations for a 0.2 percent increase.

However, overall orders for durable goods - items fromtoasters to aircraft that are meant to last at least three years- tumbled 5.2 percent as demand for civilian and defenseaircraft fell sharply.

Last month's drop was the first since August.

The strong rise in so-called core capital goods shouldbolster expectations for business spending on equipment andsoftware to remain on an upward trend this quarter.

Still, the report is unlikely to change the FederalReserve's very easy monetary policy stance.

Last month, shipments of non-defense capital goods ordersexcluding aircraft, used to calculate equipment and softwarespending in the gross domestic product report, fell 1 percentafter being flat the prior month.

Overall orders for durable goods were dampened by a 19.8percent drop in transportation equipment as demand for civilianaircraft dived 34 percent.

Boeing received orders for only 2 aircraft, down from 183 inDecember, according to information posted on the plane maker'swebsite. The decline in orders is probably not related to thegrounding of Boeing's 787 Dreamliners after problems withoverheating batteries.

However, aircraft orders are very volatile and typicallytend to fall at the start of the year.

"I haven't heard any reports about airlines canceling theirorders. This could be one-month lull rather than somethinggreater," said Stephen Stanley, chief economist at PierpontSecurities in Stamford, Connecticut.

The cuts, which are part of a plan to reduce the budgetdeficit, are set to kick in on Friday, unless Congress and theObama administration come up with a last minute deal. Defensewill bear much of the cuts.